Wealth Creation - Millionaire on the Prairie

Make Money While You Sleep

Passive income is my favourite kind. If there’s an easier way to increase my cash flow, then I haven’t found it yet. Generating passive income takes a modicum of effort on the front end, then time does the rest. You will make money while you sleep. It can’t get any easier than that!

When I first started investing in dividend-generating securities, my monthly dividends were roughly enough to buy a pack of gum. It wasn’t exciting and I didn’t tell anyone about them. Instead, I went about the business of setting up a dividend re-investment plan, aka: a DRIP, so that all those little amounts of money could compound as fast as possible. In the meantime, I sliced off a chunk of my paycheque every two weeks and sent it to my investment account. Over time, the monthly amount of dividends steadily increased. The first time I earned $1K in a single month was pretty exciting! My plan was finally working and I could envision living off my dividends in retirement. Woohoo!!!

What I love most about dividends is that they’re the easiest money I’ve ever earned. The money that I invested 30 years ago is still working for me. That fact still blows my mind. Yes – I had to go to work to earn a paycheque. And I had to live below my means, which is just another way of saying that I had to choose to invest-for-tomorrow rather than spend-every-nickel. Finally, I had to leave it the hell alone for a very long time so the DRIP could work its magic.

The beauty of a DRIP is that it compounds the dividends automatically. I don’t need to re-invest the same earned dollar over and over and over in order to see the dividend amount grow. The compound growth from that first contribution will continue indefinitely until such time as I sell the underlying investment. So every time I invest new dollars, I’m increasing the assets that will work for me 24/7/365. Those assets grow for me in two ways. First, each subsequent contribution makes my asset base larger. Second, companies increase their dividend payments. This is known as organic dividend growth, and I love it.

The invested dollars are the ones that are buying me my financial freedom, one paycheque at a time. I can’t deny that the size of my paycheque mattered too. After all, one can’t invest if one has barely enough to cover the bare necessities from one paycheque to the next. Thankfully, I wasn’t in that position. I was fortunate enough to be in a position where I had plenty leftover to splurge on the wants. Instead, I curbed that impulse and chose to invest a good chunk of my disposable income.

(Lest you think that I lived like a miser, rest assured that I did not. I’ve travelled to Europe 3 times in the space of 5 years, visited the US more times that I can remember, attended 3 destination weddings in not-inexpensive locations, maintained seasons tickets to Broadway Across Canada, gone to many concerts at home and abroad, and socialized atleast twice per week with friends. The pandemic slowed me down, but only because everything was closed for a bit. I’ve had many great experiences with family and friends, while avoiding the relentless marketing & exhortations to spend everything I earn.)

Looking back, I credit those three steps – earn, invest, DRIP – with putting me in the position that I am today. If it becomes necessary, I could live on my dividend income. It would be tight, but I could do it. Do you know how comforting that feeling is? I’ve reached Lean FIRE, as the kids call it.

One of my favourite YouTubers talks about how she set up an investment account for the sole purpose of paying for her home’s mortgage. At the time of her video, Dividend Dream had an investment account that generated enough cash every year to pay for her mortgage. Watch her video. After giving it considerable thought, she decided that it made little sense to liquidate her account to pay off her mortgage. I’m convinced that she’s right. When you have a cash machine steadily paying for some, if not all, of your expenses, there is no good reason to destroy it. It makes more sense to keep the cash machine running smoothly so you can live off the income it generates.

Speaking from personal experience, Dividend Dream’s method works. As I said early, my first few dividend payments were enough to buy a pack of gum. Then they grew to be enough to cover my monthly Netflix subscription. Soon after that, they were enough to put one tank of gas in my vehicle. The next big step was paying for half a mortgage payment, then a full mortgage payment. Today, my monthly dividend cheque is enough to cover 90% of my regular monthly expenses – both needs and wants. That’s pretty good, if I do say so myself.

Invested money works non-stop. It doesn’t get sick, need time off, or otherwise stop working for you. Once you get the ball rolling, there’s little else that you need to do. Earn the money then invest it in dividend-producing assets. Time will do the rest. You can sleep without worry, comfortable in the knowledge that you’re earning money through passive income. Unless you’re paid to sleep, I can’t think of a better or easier way to earn money.

I Love My Cash Machine!

Happy New Year! I hope that you 2024 is off to a great start for you.

I’m happy to report that my cash machine hit a new milestone in 2023. After crunching all my numbers and updating all of my spreadsheets, I was quite pleased. For the first time ever, my cash machine generated more dividends in my non-registered account than the amount of contributions that were made. Woohoo! I’ve waited a very long time for this to be the case, and I can tell you that this achievement is sweet.

When I first started investing in dividends, I was doing it just because my parents had been investors and they’d bought some bank shares for me. Naive as I was, I simply loved the idea of dividends. My thought process in choosing my investment strategy had been… shall we say… unsophisticated. Passive income? Money sent to me just because I owned some shares? Even more money sent to me through the power of dividend re-investment plans? Where do I sign up?

I was hooked on dividends from the word go! At first, I barely earned $50 per year. The first time I earned $1K in a year, I smiled to myself. It dawned on me that I might one day earn $5,000 in dividends in one year. And the first time I earned five figures in dividends, well… let’s just say that was a very good day. Without a shadow of a doubt, I know that if I continue to invest wisely then I will one day hit six-figures per year in dividends. Yay, me!

So even though it wasn’t the best way to invest, I continued to buy more and more dividend-producing securities. (Looking back, I should have contributed to equity-based securities. I would’ve benefitted from the bull-run and likely be several years closer to retirement by now. Oh, well – coulda, woulda, shoulda!)

If I absolutely had to, I could live on the dividends produced by my portfolio. It wouldn’t be a lavish existence by any means. I’d have to cut out a few things – like travel and theatre – and I’d definitely have to watch my nickels & dimes more carefully. But, I’d be able to do it.

It’s amazing to me that I’m in this position. I have made so many investing mistakes. Like I alluded to earlier, I invested in dividend-paying securities instead of equity-based securities. In hindsight, the biggest money mistake I made with my portfolio was choosing passive income over growth. Given that I started investing at age 21, I see now that I’ve made a huge mistake with my portfolio! I wasn’t terribly knowledgeable about investing at that tender age, and my parents weren’t experts in the area either.

They taught me to stay out of debt, to live below my means, and to invest in banks and energy stocks. That’s not bad advice, and I really didn’t go too, too wrong. However, they didn’t teach me about the differences between growth investments vs. income-generating ones. They didn’t teach me most of what I now know about investing. To be clear, I’m not blaming them because you can’t teach what you don’t know. Had they known, they would have stuffed it into my head just like every other life lesson they imparted to me.

And the internet was nascent when I was young. Today, there are blogs and websites and many, many, many online platforms for self-directed investors. The knowledge is literally at everyone’s fingertips so long as they have a device and an internet connection. Anyone with disposable income has the ability to create their own cash machine and watch it grow over time.

Had I been smarter sooner, I would’ve tweaked my investment plan sooner. My cash machine would’ve been kicked into high gear even sooner. Instead, I believed that a person had to stick to one investment strategy forever. This belief was another huge mistake that I made with my investment portfolio. Still somewhat begrudgingly, I have come to realize that tweaking things isn’t always terrible.

For example, I tweaked my investment plan back in October of 2020. As you’ll recall, that’s when the stock market started to recover from the devastating impact of the pandemic. I decided to start buying units in VXC. From that point one, I decided that all contributions to my non-registered portfolio and my RRSP would go towards buying VXC. That was a very smart decision on my part. I can happily report that my returns since 2020 in those two accounts reflect that my tweaking was the right move.

This year, I’ve decided to tweak my TFSA account. (Why didn’t I do this back in 2020? Honestly, my failure to course correct in my TFSA can be chalked up to ignorance about the tax implications of owning securities where I’d pay a withholding tax.)

This year, my TFSA contribution went towards buying units in VGRO. I’m getting a bit more bond exposure in my overall portfolio while also adding some needed equity exposure. Since I plan to hang onto my TFSA for a very, very, very long time, this is the perfect place to add a growth-oriented investment product. There will come a day when I might want to start drawing out tax-free money from this account, so it’s best to tweak my TFSA holdings today. If I’m burdened with too much money, then it’s a cross I’ll have to bear.

So what are my future plans for my cash machine? Well, I’m hoping that it will soon kick off more dividends than the amount I contribute to both my brokerage account and to my TFSA. There’s a chance that might happen by 2026, but only time will tell. By the time I retire, I hope that it generates enough for my basic needs and for my nice-to-have’s. In short, I want my cash machine to generate six-figures of income. Wouldn’t that be nice?

A Gift For You – A Step-By-Step Plan for Your Money in 2024!

There’s only 1 week left until we say “Welcome!” to 2024. My gift to you this holiday season is a step-by-step plan for your money. As always, take what you want and leave the rest.

First off, I want you to open atleast 3 bank accounts. Each of these will have a very specific purpose. You can add more if you want, but you need atleast three.

First Account – Your Chequing Account

This is the account that will be the center of your financial life. You will deposit your paycheque money into this account. You will deposit your tax refunds into this account. If you get birthday money, it will go into this account. In case I’m not being clear, all of your money will flow into this account.

Next, all of your automatic transfers will flow out of it. These are the transfers for plumping up your emergency account and for sending money to your investment accounts, aka: the Care and Feeding of Future You accounts.

Once the automatic transfers have been completed, you can spend the remaining money in your chequing account however you see fit. As you know, I’m not a fan of budgets.

If you see a need to budget whatever’s left over after your transfers have gone through, then more power to you.

Second Account – Your Savings Account

This account will hold your emergency fund. These are the funds that you will rely on in a true emergency, which I’ve defined as the loss of your income. If your paycheque goes away, then you will use the money in your emergency fund to pay for your life until such time as you get another paycheque.

How much should you have in your emergency fund? Well, I’m quite traditional on this subject. I think you should have between 6-12 months of take-home pay in your emergency fund. If you can replace your paycheque quickly, then it’s okay to have closer to 6 months of take-home pay. However, if it would take you longer to replace your income, then aim for the higher amount.

Don’t expect that building an emergency fund is going to be easy or quick. It’s simple to create one. After all, the only thing you need to do is set aside money from every paycheque and then not spend it. However, as we can all agree, it’s not always easy to keep our mitts off a growing pile of money.

Easy or not, you still need to do it. Set up an automatic transfer from your chequing account to your savings account. Make it for $100 (or whatever amount you can reliably handle) and send that money to your savings account every time you get paid. The higher the amount, the faster you fill your emergency fund.

Trust me when I tell you that absolutely no one in the history of the world has ever complained about having too much money during an emergency.

Third Account – Your Investment Account

This is the account where you’re going to invest money for Future You. As I’d mentioned above, Future You is still going to want food everyday and warm place to sleep once you’ve stopped working. You owe it to your future self to start investing for tomorrow.

By now, you know the drill. Set up an automatic transfer from your chequing account to your investment account. I would advise that the transfer amount be atleast 20% of your net, take-home pay. If you’re under 25, then it can be 15%. And if you’re older than 25, aim for 30%. Again, if you can’t hit these targets right now, then set the automatic transfer amount for whatever you can afford. Then, work up to the target percentages as your income grows and as your debts are paid off.

You can hold your investment account with your current financial institution, with an online brokerage, or with an investment company. In the interests of transparency, I hold my accounts with an online brokerage where I do a single trade, once a month, to buy more units in my exchange-traded fund of choice.

Once your transfer goes through, do not leave the money sitting around. Invest it! The only way to make your money grow is to invest it. I recommend exchange-traded funds for the following reasons:

they’re less expensive than mutual funds and offer the same level of diversification;
they’re way less risky that picking individual stocks;
they allow you to invest in hundreds of companies at once and in different countries; and
they permit you to benefit from dividend re-investment plans immediately.

When you go to buy exchange-traded funds or mutual funds, pay attention to the management expense ratio. You should never be paying more than an MER of 0.40% without a damn good reason. MERs paid to someone else are money that is leaving your pocket. The higher the MER, the less money that you have invested. The MER shouldn’t be the only reason that you pick an ETF or a mutual fund, but it should be a factor that’s given a lot of weight when you decide where to invest your money.

Next, your ETF or mutual fund should have a DRIP feature. The dividend re-investment plan is one of the tools that’s going to help you stay invested. You see, at first your annual dividends are going to be very small. Think dollars… or cents. But within 2-3 years, you’re going to be receiving hundreds and then thousands of dollars on an annual basis. With a DRIP, those dividends are automatically re-invested while you, Dear Reader, are spared the temptation of spending them. The dividends don’t land in your investment account. Instead, they promptly re-invested before you ever get a chance to consider withdrawing them and spending them.

Finally, keep investing no matter what. The pandemic taught many of us that the stock market can plunge deeply within the span of a few weeks. And 2022 was no picnic either for investors. Even today, the Talking Heads of the Media are expending a lot of chinwag on “the recession”.

Listen.

No one knows when the recession will get here, how long it will last, nor how bad it will be. The only thing that they can all agree on is that it won’t last forever. When the recession is over, the stock market will start going up again. It’s what the stock market does, and what it has always done. If you’re not invested, then you won’t benefit from the stock market recovery.

So invest. And stay invested. Do not stop contributing to your investment account. Transfer your money to this account and continue to invest your money so that it can grow. Future You will thank you for doing so.

Additional Accounts – Your Sinking Funds

These accounts are where you will accumulate funds for both un-sexy stuff (car insurance, annual property taxes) and irregular payments that make your life better (travel, theatre subscriptions, concerts, fine dining, etc…)

In short, you will prioritize your short-term goals and set aside money to pay for them. I can’t tell you how much easier it is to pay may insurance premiums when I know that there’s money sitting in a bank account just for that purpose. The same goes for my annual subscription to Broadway Across Canada, my vacations, my property taxes, etc, etc, etc… You get the drift. If a certain item or service has made it onto my priority list, then I have an account set up to pay for it.

You should do the same. Sinking funds force you to allocate money to the things that are most important to you getting closer to your dream life. And one of the keys to a dream life is not having to worry about how to pay for the things that you want.

That’s the Plan.

Those are the steps. Everything else is a detail. I admit that it’s not glamorous, nor particularly snazzy, but I can assure you that this plan works. I’ve been following it for most of my adult life, and I’m pretty satisfied with the outcome. I’ve made mistakes along the way… many mistakes… but sticking to this plan for my money has tempered their impact on my financial life.

Your Tax Free Savings Account is for Investing!!!

Hear me now! Your TFSA should be for investing. Don’t use it as a savings account for your emergency fund or as a sinking fun for stuff.

In 2024, the contribution room for the TFSA will go up to $7,000. Please don’t tell me that you can’t afford to save $7,000. What can you afford to save? Whatever that amount is, that’s the amount I want you to contribute. Then I want you to squeeze your budget a wee bit more and add in a little extra. The more that’s invested, the happier you’ll be.

Let’s say you can afford to save $1,000 per year. That’s a little less than $20 per week. If you invest that $1,000 each year in your saving account, you might earn 3% each year on your money. After 30 years, you’ll have saved $30,000. At a return of 3% per year, this nifty little Future Value calculator says that you’ll have $49,002.68 in the bank. In other words, you’ll have gained $19,002.68 over 3 decades. This is a bad return on investment.

You could do way better.

If you invest that same $1,000 each year into the stock market and earn an average return of 8% over that time frame, you’ll have $122,345.87. Over the same 30 years, you’ll gain $92,2345.87 – more than 3 times what you invested.

Do you see why you should use your TFSA to hold the investments that are going to give you a bigger return over a long period of time? You’ll have way more money in your kitty at the end of your working life and that money will not be taxed once you start withdrawing it to fund your retirement.

Play around with the values in the calculator. If you can squirrel away $2000 every year – or $40/wk – so much the better. Don’t worry that you can only invest smaller amounts right now. Over time, you’ll be able to invest more. Also, your investments will be generating dividends and capital gains. Re-invest those and think of them as contributions to your future. Compounding is slow at first but it starts to get very sexy and very interesting once a few years have passed.

Do not take money out of your TFSA unless it is the direst of emergencies. You should have a separate emergency fund. Keep that money in the bank. You’re not trying to invest your emergency fund. It has to be there when you need it so accept the 3% return that your bank is offering you. The money that’s in your TFSA should be invested in a broadly-diversified, equity-based exchange traded fund. Or you can invest in a broadly-diversified, equity based index fund. These types of ETFs and index funds invest your money in the stock market.

Notice how I said that your investments in the stock market will likely earn an average of 8% over a 3-decade time span? It’s an average because the stock market is volatile. Some years, the stock market will be down but other years it will be up. However, over 3 decades, the stock market will definitely be higher than it is today.

So invest in the stock market and leave it alone. Set up an automatic transfer so that you’re investing from every paycheque. Once you’ve done that, you go about your merry way and let time in the market work its magic on your money.

Going Out Always Costs Me Money

It’s expensive out there. Staying at home with a cup of homemade coffee, snuggled under my favourite throw, and reading a long-anticipated book is a cheaper use of my time. And it’s just as satisfying to me as anything I pay for outside my home.

I don’t know about you but it’s expensive to leave my house. Yesterday, it was gassing up my vehicle. Today, it was groceries. Tomorrow, it’s Halloween so there might be last minute run to the grocery store for candy. Later on this week, it’s dinner with a dear friend. Next weekend… sigh… I think you catch my drift.

In terms of problems, this one really doesn’t count. Over the years, I’ve built up some very good habits for my money. I use automatic transfers to fund my emergency accounts and to invest for retirement. Several years ago, I established sinking funds for annual, un-sexy expenses like insurance premiums and property taxes. And lest you think that I don’t have any fun, there’s even a sinking account for travel, gardening, birthday presents, and theatre subscriptions.

So when I say that leaving my house is synonymous with money leaving my wallet, please know that I’m taking care of my priorities before spending on the day-to-day stuff that crops up.

You see, I think it’s the same for everyone. Leaving the house usually means spending money. The world is literally designed for us to spend money everywhere. Vending machines. Coffee shops. Grocery stores. Restaurants. Drive-through windows. Retailers of every stripe. Parking lots & parking meters. It’s hard to get through the day outside of the home without spending a little something somewhere.

Priorities First

Based on my own observation, the trick is to do your saving and investing first. It’s the timeless principle to pay yourself first. You may have heard of it as living below your means. When you get paid, transfer some of your net income – ideally 20% or more – into your saving/emergency/investing account. Once that money is tucked away, you can spend the remaining amount however you want so long as you don’t go into debt.

At the tender age of 16, I got my first part-time job as a cashier in a grocery store. Every two weeks, I took home just over $130. I picked $50 as my “savings amount” and transferred it into a separate account. By the time I bought my first car 5 years later, I had socked away $8,000. (Living with parents who paid for everything helped tremendously.)

If I knew then what I know now, I would’ve embraced public transit sooner and that money would’ve gone into equity investments in the stock market. Oh, well… too late smart.

Bottom line is that I started my first habit – saving a chunk of my paycheque every time I was paid – at a tender age. When I bought my first condo, I really had to figure out where my money was going. It was the first time I realized how badly I needed an emergency fund. If I had to pay for a condo assessment, then I needed to have money set aside or else I would have to go into further debt to cover my portion of the assessment. And when I moved from a condo to a house, I learned that furnaces and hot water tanks and roofs are exactly cheap. Again, my emergency fund got some loving attention.

Tune Up Your Finances

Speaking of your emergency fund, how’s it doing? Do you have atleast 3 months of expenses in there yet? If not, get to work. If yes, then consider beefing it up. Inflation is still something of a concern. I don’t know what’s happening in your corner of the world, but things aren’t getting any less expensive as far as I can tell.

Once your emergency fund is nice and fat, focus on filing your TFSA and your RRSP. Ideally, you’ll max out your contributions every single year. Realistically, that’s not likely to happen. Do what you can to put in as much as you can. Invest your money for long-term growth. When you’re too old to send your body out to work, your TFSA and RRSP will provide the cash you need to live.

And if you’re fortunate enough to be able to max out those two accounts, then open a non-registered account and invest your money. Unlike the TFSA and the RRSP, there is no limit to how much you can invest in your non-registered account. Take advantage of that to earn dividends and capital gains, two forms of income that are taxed less lightly than your paycheque.

I speak from personal experience. It took me years to fine-tune my system, but it’s now running like a well-oiled machine. Between my automatic transfers and my sinking funds, I’m able to fill my TFSA and my RRSP every year. I’m able to send money to my non-registered account from each paycheque. And my emergency fund is nearly fully funded because it takes a very long time to save up a year’s worth of expenses. (Yes – in my view, a fully funded emergency fund is one that will keep me going for a year. You may feel otherwise.)

You Can Do This

So long as you’re investing 20% of your income, or whatever you can realistically afford, then it doesn’t really matter that you spend money every time you leave your home. Just don’t go into debt! If you’re going into debt, then you need to stop. Debt is corrosive to your ability to secure your future. Money that’s going to your creditors is money that it not going towards your financial future.

And I know that 20% is a big chunk of money. You may not be able to save that much right away. Guess what? I don’t care. You start where you are and you work your way up. Ruthlessly cut out whatever you don’t need so that you can save and invest for Future You. No one else is responsible for ensuring that you have the kind of retirement you want for yourself.

So, yes – going out is going to be a hit to your wallet, more often than not. However, if you take care of yourself by investing off the top and by keeping your emergency fund healthy, then those hits won’t matter. The money that’s working for Future You will keep doing its job, regardless of the day to day expenditures.

Regretting Financial Mistakes Is a Waste of Your Time

Regret has no place in your financial plan. You’re not perfect and you will make mistakes with your money. Once you’ve identified a money mistake, don’t spend your time regretting it. Simply make a course correction to stop making that mistake and move forward. The past cannot be changed so learn from your mistakes and resolve not to make the same ones in the future.

When I started investing, I picked a dividend investment strategy. I started by buying into dividend mutual funds. Eventually, I learned about management expense ratios (MERs) and discovered that I was making the mistake of paying 10x as much for mutual funds when I could acquire the same assets through exchange-traded funds (ETFs). There was no way to recoup my time or those MERs, so I simply moved my money to ETFs. I made a course correction and moved on.

What is the point of spending time regretting choices that were made when I didn’t have the best information available to me?

Once I learned better, I chose better.

Dividends vs. Growth

A doozy of an investing mistake still hurts. I can only blame myself for this one. My belief in the wisdom of my own choices meant that I didn’t properly consider what was going on around me. I wasn’t learning the lesson, no matter how many times it was hitting me in the face…sigh…

Remember that phenomenal bull-run that was experienced in the stock market between 2009 and the onset of the pandemic in 2020? The one where the S&P/TSX Compound Index grew by 125%? The one where the S&P500 increased by 378%?

Guess who was still investing in a dividend strategy instead of investing in US-growth equities?

That’s right. Me.

It was a huge mistake in my financial planning. I had so much faith in my own choices that I missed out on a fantastic opportunity to invest over the long-term. I made sub-optimal investing choices for 11 years!!! At any point, I could’ve realized how I was missing out on growing my portfolio much, much faster… but I didn’t.

Instead, it wasn’t until October of 2020 that I finally saw that I was again missing out. I was determined to benefit from recovery that followed the pandemic-induced stock market plunge. So I course-corrected. I started investing in an equity-based, well-diversified ETF and I haven’t looked back.

Regret has no place in my financial plan. Of course I wish I had made optimal choices at every single point throughout my investment life, but horses aren’t wishes so this beggar can’t ride. I’ve done what I’ve done and I get to live with the consequences.

And all told, my choices weren’t the absolute worst ones out there. To date, I’ve been investing for 3 decades. My dividend portfolio will ensure that my retirement is nice and comfy. I chose to start young, which is always preferable to starting when old. As far as mistakes go, I could’ve done far worse.

Now, all of my investment contributions are going into the equity-based growth ETF. Its performance is giving my portfolio higher returns, which is always appreciated. I have no plans to stop investing in my ETF, even after I retire. It will continue to mimic both the volatility and growth of the stock market, which is a good thing over the long-term.

Taking a Break vs. Riding the Rollercoaster

I made another huge mistake during the crash of 2009. Instead of continuously investing, I stopped my contributions. Thankfully, I didn’t make the mistake of selling anything while the price was down! Yet, it would’ve been smarter to ride the rollercoaster of volatility during that crash. I would’ve been buying into my dividend-paying companies when they were all on sale!

Woulda. Coulda. Shoulda.

No regrets, remember? Instead, I resolved to never stop investing. As we all remember, the stock market took a huge plunge when COVID-19 was declared a pandemic. Between you, me, and the fencepost, I lost a third of my portfolio’s value on paper. I know because I checked my brokerage account daily during those first few months.

Truth be told, I really don’t know how many paper losses I suffered because I stopped looking at the number after I’d lost that first third. It was too painful.

But you know what I didn’t do? I didn’t stop investing! Even though the market plunged steeply between February 21, 2020 to March 23, 2020, I continued to buy into my dividend-ETFs. And throughout the recovery between March and October of that year, I stuck to my investing schedule and bought many, many, many units in my ETFs-of-choice.

The mistake of 2009 was not to be repeated! Instead of taking a break from investing, I rode the rollercoaster of the stock market. It paid off. Buying those ETF-units when the market was down allowed me to accumulate way more units that I would have otherwise. Each of those units pays more dividends today than they did in 2020. The end result is that my monthly dividend payment is much higher than it was before the pandemic.

Secret Sauce

Like I’ve said before, the secret sauce isn’t being bright. Rather, it’s being persistent. The genius of the secret sauce is following 3 basic steps, over and over and over again.

Make the choice to invest. Then invest. And don’t stop investing.

Everything after that is simply a detail. You follow the steps, and you course-correct when you make your inevitable mistakes. Don’t waste your time on regret. There’s nothing to be gained from that activity. Instead, always remember that you’ll do better when you know better.

Into the Minutiae: Lowering your MERs While Meeting Your Goals.

You should be lowering your MERs, i.e. management expense ratios whenever it makes sense to do so. In short, the MER is the price that you pay for the investment product that you’re buying. It’s a percentage of your investment that is paid to the company that put the product on the market. MERs can range from as low as 0.04% to 2.75%.

As I’ve said before, success with money is within everyone’s grasp because the secret sauce isn’t being bright. Take it from me. I’m not the smartest lobster but I’ve managed to set myself up quite nicely by reading a little bit and following a few simple steps. I’ll share them with you right up front so you can start doing these things for yourself too. I promise that Future You will be very happy if you start and continue doing the following 3 things:

Live below your means so that you always have money leftover to invest. Track your expenses. Cut down on the things that aren’t essential to your survival. Use that money to invest for the future and to build your emergency fund.
Invest 20% of your net income for long-term growth in a well-diversified equity exchange-traded fund (ETF)***. You’ll find the 20% by completing step one. If you can’t find 20% right away, then start with whatever you can and work your way up to 20%.
Re-invest all the dividends and capital gains that your portfolio generates. Do not spend this money! Your dividends and capital gains will bolster the money that you invest from your paycheque. They will exponentially increase the compound growth of your investments. The result of re-investing dividends and capital gains is having your portfolio growing bigger and faster without any extra work from you.

Consistently investing a portion of your paycheque every time you’re paid will vastly improve the odds that you won’t be homeless, hungry, and cold when you’re a senior citizen. If you follows these 3 steps faithfully, you’ll do very for yourself.

My favourite sibling and I were talking about investments and my sibling stated that I hadn’t optimized my investments over the years. I couldn’t disagree. The truth is that I have made mistakes over the years, and I could’ve made smarter choices sooner. However, I don’t flagellate myself too, too much over the choices I’ve made because no one is perfect. For all of the reading I’ve done and people I’ve talked to, here’s the truth. No one has an ideal investment track record. Every single person could’ve made atleast one better choice at some point. Everyone has made mistakes when it comes to their investment journey.

The only mistake that is fatal to building wealth is never starting. Working paycheque-to-paycheque for a lifetime is pretty much guaranteed to ensure that there is no retirement money waiting for you when employment ends.

Thankfully, that is one mistake that I didn’t make. I’ve been investing since the age of 21. Have I done it in the best way possible? Absolutely not! If I could go back and make different investment choices, you’d better believe that I would do so.

The one area where I didn’t screw myself too badly was in relation to MERs. As soon as I understood what they were, I made sure to lower them as quickly as I could.

Again, if you follow the first 3 steps that I’ve set out, Future You will be very happy.

Optimizing your MERs is simply delving into the minutiae.

Check out this expense ration impact calculator to see the difference that MERs make on your returns. Just for fun, plug in a starting investment of $0, an annual investment of $5200, expected return of 7%, and an investment duration of 30 years. Now, change the expense ratio from 0.04% to 2.75%. Carefully review the difference in the future value of total investment and the total cost of the fund.

Keep playing with this calculator, and use your own numbers. Maybe you’re not starting at $0, or you can’t invest $100/week, or the lowest MER you can find for the ETF you want is 0.35%. The point is that higher MERs mean that you keep less of your money over time. If you lower your MERs, then you will keep more of your money. Your time horizon is decades long and you’ll eventually have a 7-figure portfolio size.

Invest in ETFs with low MERs. When you pay lower MERs, more of your money will remain invested over a long period of time. Money that isn’t paid out as fees will benefit from compound growth. That means it stays in your pocket instead of going to the ETF-provider. Look for ETFs that have MERs of 0.5% or less and try to only buy those. You’ll be doing yourself a huge favour.

MERs shouldn’t be the first thing that you consider when you’re looking for the right ETFs to add to your portfolio. But if you want to optimize the returns on your investments, MERs shouldn’t be ignored either. If you have to choose between two ETFs that will allow you to meet your financial goals, pick the one that has the lower MER.

*** In the interests of transparency, I invest my money in VXC. This ETF is from Vanguard Canada. I like Vanguard because their ETFs have low MERs and they give me the diversification that I need to grow my portfolio over the long-term. I am not recommending that you invest in this ETF. I don’t know your circumstances and I’m not qualified to recommend financial investments to anyone. Do your own research and pick an ETF that will best help you meet your goals. If you do decide to get advice, go to a qualified financial advisor.

Easy Money Is My Very Favourite Kind!

I love money. I always have, mainly because it allows me to buy all sorts of things. Hard money is good too, but easy money is better.

Hard money is the kind you have to sweat for. It’s what shows up in your paycheque after you’ve traded away a portion of your very precious, very limited time here in this world. You’ve shuffled a little bit closer to the end of that mortal coil in exchange for some money.

Great! Fabulous! You made the deal, and you got what you were promised. Hard money is earned through hard work.

Yet… if you’re fortunate enough to learn about it before your days are done, there’s a way for you to also receive easy money. This is the money that you don’t have to work for. It just arrives in your bank account – easy peasy, lemon squeezy. Whether you show up at the office, whether you get out of bed, whether you’re at home, at the top of a mountain, on a beach, or at sea. This money flows into your coffers without you having to do a thing.

Is it obvious yet? Easy money is my very favourite kind.

Some of the people in my family have acquired $44,000 in less than 5 years. How did they do that? It’s quite simple, really. They invested under the following conditions:

when the stock market was doing well before COVID-19 arrived;
when the market plunged at the start of the pandemic;
during the tepid recovery between late 2020 and the end of 2021;
during the turbulence of 2022; and
they’re still investing in 2023.

My family members invested in the stock market without fail and turned contributions of $21,000 into $44,000 without batting an eye. A minimum of $3,000 per year was invested into broadly diversified equity ETFs in each of the past 5 years. In the past 2 years, the contribution amount increased to $6,000 per year.

The initial $21,000 contribution amount is broken down like this:

2019, 2020, 2021 = $9,000 invested ($3,000/yr into equity-based ETFs)
2022, 2023 = $12,000 invested ($6,000/yr into equity-based ETFs)

Despite the ups and downs in the stock market during those 5 years, the invested money has more than doubled. Not bad… not bad at all. Money went in and it didn’t come out. My family members left it alone to do its thing, and “its thing” was to grow quickly in a short period of time. That’s all, folks. It wasn’t more complicated than that.

Someone had to work to get the initial $21,000, right? That was the hard money that has since been turned into easy money… the additional $23,000 of value that no one had to sweat for.

You can do the same thing for yourself, if you’re so inclined. Can you find $100 per week? That’s $5200 per year. Maybe you can only find $25 per week? That’s $1300 per year.

Whatever you can find, then you start investing with that amount and you move up from there. Wiser minds that mine suggest investing in growth stocks. They have a track record of higher returns. For my part, dividends worked for me but it took a long time to get where I am right now. If I had to go back, I’m not so certain that I would make the same choices. My sack of gold is heavy, but it could’ve been much heavier had I been smarter sooner.

C’est la vie, right?

You’re quite lucky in that you get to decide for yourself whether you want to only earn hard money. If you can read this blog, then you can start to make easy money. Slice off some portion of your paycheque every time you’re paid and send it to your brokerage account. I’d suggest opening a brokerage account at a place that has a list of commission-free ETFs that you can buy. As soon as you can buy one unit of a commission-free ETF, do so. When the dividend or capital gains from that investment rolls in, re-invest it and do not spend it.

You’re building a cash-machine. It will take some time. The dividends and capital gains will be paltry at first. Given time, they will multiply. I’ll never forget the first time my cash-machine spit out $100 in a single month. That was awesome! You know what was even better? The first time it generated $1,000 in a single month! Believe you me, the first $5,000 dividend payment has been the nicest yet.

So start today. You too can earn easy money. And if you love your job, great! No one’s telling you to quit. You can do your job for as long as it makes you happy. Earning easy money in no way eliminates your choice to work. However, if there’s the slightest, tiniest possibility that you might not always enjoy working for hard money, then follow my advice. Take the steps now to earn some sweet, sweet easy money later.

Increasing my Passive Income in a Few Clicks

This week, I gave myself a $600 annual raise. No, I didn’t get a promotion or take a different job. Instead, I simply increased my passive income by buying some bank stock. As I’ve said before, salary and income need not be the same thing. There are always ways to increase your income even if your salary isn’t going up as fast as you want it to.

Normally, I’m not a stock-picker. I love my exchange-traded funds because they pay me dividends every month and I get the benefit of diversification. Another way of saying this is as follows. My ETFs generate passive income, which is my very favourite kind of income.

Allow me to be extremely clear. I bought shares in this bank solely because I’d received a stock tip from my sibling who is very wise and very methodical about certain things. Stock tips that come my way are generally disregarded instantly. Like I said, I’m a believer in ETFs and that’s where I’ve been investing my bi-weekly contributions to my investment portfolio since 2011. So why did I listen to my sibling this time around? Why did I act on this particular stock tip?

First, I understand what banks do. They make money, hand over fist, year-in-year-out. Some of that money is paid out to shareholders in the form of dividends. Given that I’m looking to retire within the next 10 years, I want to build a steady stream of reliable cash flow to fund my retirement. Dividends fit the bill. They also receive preferential tax treatment, which is a nice cherry on top of this tasty sundae!

Secondly, the bank I bought pays over $1/share in dividends 4 times each year. For every share I own, I’ll be making $4 per year. An extra $4/year? Big whoop! Remember that it’s an extra $4 per year per share. The more shares I have, the more dividends I earn. And I’m a huge believer in the dividend re-investment plan, which leads to my third point.

Thirdly, my brokerage will allow me to DRIP the quarterly dividends from this stock. I’ll “only” acquire 2-3 new shares every 90 days from this initial purchase, but each of those DRIP-stocks will also earn over $1 per quarter and will also lead to the purchase of even more bank stock. I’ll be benefiting from exponential growth in the number of shares that I’ll own, which means that my passive income will also be growing exponentially the longer I hold this stock.

Fourthly, the dividend payout of these shares is likely to go up. The bank stock I purchased this week has increased its dividend for the past 5 years, so it is considered a Canadian dividend aristocrat in some quarters. (Check out this article from Million about dividend aristocrats if you’re interested in learning more.) Increases in dividend payout are also known as organic dividend growth, a feature of dividends that I like very, very much.

Fifthly, I can keep earning these ever-increasing dividend amounts forever. I’ve created a beautiful money-making cycle that will continue as long as I’m alive. Unless I shuffle off quickly, this stock purchase should soon be paying me $1000 per year, then $2000, and so on and so on and so on. It’s the beauty of the DRIP meeting compound growth.

Finally, if there comes a time when I need to stop my DRIP and live off these dividends, then I can do so. While I’m always thinking of ways to increase my retirement income, I assure you that I don’t plan to live on the entirety of that income unless I have to. For my whole life, I’ve lived below my means. Presently, I don’t see any reason to stop doing so when I retire. The dividend income from my ETFs and my pension should be enough to cover my expenses when my employer and I part ways. If I don’t need the passive income from my bank stock to live, then I see no reason to stop the DRIP.

To recap, dividends generate passive income. Ergo, dividends are my favourite kind of income. This week, I had the opportunity to increase my passive income so I took it. The benefit is that I’ve increased my annual income and I’ve bought myself a little bit of insurance that I’ll have enough money to pay for things when I’m too old to return to the workforce. In the meantime, I’ll sit back and let the magic of compound growth do its thing via my DRIP. It’s all good!

Using a Cash Machine to Fund Your Dreams

This weekend, I happened across a wonderful video about building a cash machine to fund dreams. It was created by a YouTuber that I discovered about 2 months ago. She goes under the handle “The Dividend Dream” and I’ve learned a lot from her videos. The one that I’ve bookmarked in my Favorites folder is the one about how she plans to use her dividends to buy a beach house.

Mind blown! What?!?!?!

Anyway, I want to unpack some of the things she talks about in this video. Feel free to watch the video first or watch it after you’ve read my Sunday afternoon ramblings. Just so you know, I’ve watched her video several times already and plan to watch it a few more times. Her example is one that I hope to follow because I think it’s repeatable for anyone, both on a large scale and a small one. Your mileage may vary.

Poor People Thinking

As explained by the TDD, poor people thinking is to earn, cut expenses, save up money, and use that money to pay off debt. This isn’t a terrible plan. Truthfully, it’s a bajillion times better than staying in debt and paying unlimited amount of interest to creditors over your lifetime.

However, it’s not an optimized plan. Poor people thinking doesn’t allow for the creation and maintenance of a cash machine.

If you watch TDD’s video, you’ll hear her say that she started a brokerage account to save up enough to pay off her mortgage. She doesn’t say how long it took her to save up $425,000, but that doesn’t matter. The point is that she started to save and invest her money in dividend-paying stocks. While she was investing her money, she continued to learn strategies for optimizing her wealth. In other words, she never stopped learning. By the time her mortgage was down to $430,000 and her mortgage-payoff account was up to a balance of $425,000, her MPA was earning $23,677 annually in dividends. Her mortgage payment amount was $22,404.

By this point, TDD realized that her MPA could pay her mortgage payments every month. Eventually, her mortgage would be paid and she would continue to earn $23,677 in dividends every year. In fact, she would earn more than that because she would still be investing money into her MPA thereby earning more dividends.

TDD had transitioned to rich people thinking.

Rich People Thinking

While it’s rarely called by this moniker, rich people thinking is to create a cash machine that will pay for life’s expenses. In TDD’s case, her MPA is a cash machine. It generates enough money to pay for her mortgage every month until her mortgage is gone. When that $430K debt is out of her life, she will still have an intact cash machine that will pay her over $23K in dividends every year.

I’m not suggesting that it’s super-fast to invest enough money to generate $23K every year. Of course not! I’m living proof of that. I started investing 30 years ago, and am only now on the edge of earning $40K per year from my portfolio. I made a lot of mistakes over the years, but mid-5 figures of dividends isn’t to shabby.

However, when I started, it didn’t take very long to earn $18 per month. That’s enough to cover my Netflix bill each month. By the following year, I could’ve covered Netflix and something else***. Go and watch TDD’s video and pay attention to the main lesson: once the cash machine is paying for an expense, it will continue to do so forever.

Your assignment, should you choose to accept it, is to start building your own cash machine. Do not be discouraged by how long it will take! Start with small goals and move up from there. The magic of compound interest takes times to impress. Going from $1 of dividends per month to $2 won’t exactly blow your socks off. That’s just a taste of better things to come. Believe me when I tell you that I was very pleased the first time I earned $1,000 worth of dividends in a month. The first time I earned over $5,000 in a month was even better. And now that my portfolio generates more than a full-time employee earning minimum wage in my province ($15/hr)… well, let’s just say that I do very much believe in the power of my cash machine.

*** In the interests of clarity, I will admit that I didn’t spend my dividends…and I still don’t. Instead, I re-invested them automatically through a dividend re-investment plan. What I do instead is track my annual expenses against my monthly dividend payments. Symbolically, my dividends currently pay for 97% of my current expenses. This is a huge jump from only 4.5 years ago! And I’m still investing a chunk of each paycheque on a monthly basis.

When I retire, my cash machine will cover all of my life’s expenses. If I continue to invest a little bit each month, then it will still continue to grow and kick off even more dividends each year.

Your cash machine can do the same thing for you. All you have to do is feed it consistently by investing a part of every paycheque until its returns are enough to cover your expenses. So go back to the start of this article and watch TDD’s video, then watch it a few more times. Do what TDD and I have done and reap the rewards. You’re welcome!